20210820-招银国际-弘阳服务-01971.HK-Strong_1H21_Results_4页_1mb

Summary of Redsun Services (1971 HK) Company Update

Core Content Overview

Redsun Services (1971 HK) reported strong performance in the first half of 2021 (1H21), with core earnings growing by 60% YoY to RMB60mn, aligning with its profit alert. Total revenue rose by 64% YoY to RMB529mn, primarily driven by the Community VAS segment, which saw a 230% YoY increase to RMB94mn. The gross profit margin (GPM) expanded by 2.6ppt to 28.9%, attributed to the high-margin Community VAS business, which increased to 48.5%. This led to a net profit margin (NPM) of 11.3%, up 4.1ppt YoY, and a net profit of RMB60mn, up 157% YoY and 36% of 2021E estimates.

Main Points

• 1H21 Results:

  • Core earnings: RMB60mn (+60% YoY)
  • Total revenue: RMB529mn (+64% YoY)
  • Community VAS revenue: RMB94mn (+230% YoY)
  • GPM: 28.9% (+2.6ppt YoY)
  • NPM: 11.3% (+4.1ppt YoY)
  • Net profit: RMB60mn (+157% YoY)
  • EPS: RMB0.14/share (+75% YoY)
  • No interim dividend was declared.

• Growth Drivers:

  • Community VAS:
    • Common area VAS revenue increased by 382% YoY, due to strategic cooperation with China Mobile and Focus Media on public space advertisements.
    • Home decoration revenue rose by 538% YoY, following the adoption of self-operation mode and VR display.
  • Third-party Bidding & M&A:
    • Third-party contribution increased to 60% in 1H21 (from 37% in 1H20), covering new sectors like industrial parks, hospitals, and schools.
    • The company aims to reach 70% third-party contribution by 2023.
    • M&A growth accelerated with acquisitions of Wuhan Huideheng and Gaoli PM, expected to add RMB129mn in annual revenue in 2021.

• Financial Highlights:

  • Revenue growth across fiscal years: 44.1% (FY19A), 52.7% (FY20A), 76.4% (FY21E), 48.4% (FY22E), 40.0% (FY23E)
  • Core Profit growth: 0.17% (FY20A), 0.40% (FY21E), 0.58% (FY22E), 0.82% (FY23E)
  • EPS growth: 0.17 (FY20A), 0.40 (FY21E), 0.58 (FY22E), 0.82 (FY23E)
  • P/E ratio at 6x for 2022E, considered attractive.
  • ROE increased to 52.9% in FY23E, reflecting strong profitability.

Key Financial Metrics

• Revenue (RMB mn): 503 (FY19A), 768 (FY20A), 1,354 (FY21E), 2,010 (FY22E), 2,814 (FY23E)
• Core Profit (RMB mn): 59 (FY19A), 93 (FY20A), 164 (FY21E), 242 (FY22E), 342 (FY23E)
• Net Profit to Shareholders (RMB mn): 59 (FY19A), 70 (FY20A), 164 (FY21E), 242 (FY22E), 342 (FY23E)
• EPS (RMB): n.a., 0.17, 0.40, 0.58, 0.82
• GPM: 25.3% (FY19A), 27.9% (FY20A), 28.7% (FY21E), 29.4% (FY22E), 30.0% (FY23E)
• Net Margin: 11.7% (FY19A), 9.1% (FY20A), 12.1% (FY21E), 12.1% (FY22E), 12.1% (FY23E)
• ROE: 28.4% (FY19A), 10.1% (FY20A), 31.7% (FY21E), 44.3% (FY22E), 52.9% (FY23E)
• Current Ratio: 1.6 (FY19A), 2.7 (FY20A), 1.7 (FY21E), 1.5 (FY22E), 1.4 (FY23E)
• Net Debt / Total Equity Ratio: Not provided in detail.

Investment Recommendation

• Rating: BUY (Maintain)
• Target Price: HK$9.37
• Current Price: HK$4.42
• Upside Potential: +112.0% from current price to target price

Shareholding and Market Data

• Shareholding Structure:

  • Redsun Group: 72.8%
  • Free float: 27.2%

• Stock Data:

  • Market Cap (HK$ mn): 1,834
  • Avg 3 mths t/o (HK$ mn): 4.44
  • 52w High/Low (HK$): 7.72 / 3.69
  • Total Issued Shares (mn): 415

Analyst Certification & Disclaimer

• The analyst certifies that the views expressed are based on personal analysis and not influenced by compensation or trading activities.
• No conflicts of interest are reported in relation to the covered securities.
• The report is for informational purposes only and does not constitute investment advice.
• CMBIS disclaims liability for any reliance on the report's content and emphasizes that investors should make their own decisions after consulting financial advisors.

Regulatory Information

• Hong Kong: CMBIS is a wholly owned subsidiary of China Merchants Bank.
• United Kingdom: The report is only for persons within Article 19(5) or Article 49(2)(a) to (d) of the Financial Promotion Order.
• United States: CMBIS is not a registered broker-dealer, and the report is only for "major US institutional investors".
• Singapore: The report is distributed by CMBI (Singapore) Pte. Limited, an exempt financial adviser regulated by MAS.

Conclusion

Redsun Services (1971 HK) delivered impressive results in 1H21, driven by strong growth in the Community VAS segment and increased third-party contributions. The company's financial performance shows a consistent upward trend in profitability and revenue. With a BUY rating and an attractive P/E ratio, it is viewed as a potential investment with strong upside. Investors are advised to independently evaluate the stock and consult with financial professionals before making any investment decisions.